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166 Cards in this Set
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macroeconomics
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deals with the economy as a whole. macro focues on the determinants of total national income, deal with aggregatres such as aggragate consumption and investment, and looks at the overall level of prices instead of individual prices.
sum of all the micreconomic decisions made by individuals and firms |
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aggregate behavior
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the behavior of all firms and households together
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sticky prices
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prices that do not always adjust raidply to maintain equality between quanity supplied and quanitity demanded
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aggregate
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refers to sum
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classical model
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believed that the market is self correction.
reccesions are self correcting |
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keynesian revolution
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government should intervene in period white private demand was low to stimulate aggregate demand
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employment act of 1946
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act established the presidents council of economic advisers.
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walter heller: fine tuning
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phrase used by heller to refer to the governments role in regulating inflation and umemployment.
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stagflation
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occurs when inflation and unemployment are both high
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3 major concerns of macroeconimics
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inflation
output growth unemployment |
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inflation
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in increase in the overall price level
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hyperinflation
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a period of very rapid increases in the overall price level
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deflation
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a decrease in the overall price level
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output growth
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economy is growing over time
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business cycle
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cycle of short term ups and downs in the economy
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parts of the business cycle graph
trough expansion peak recession trend growth |
bottom of the curve
upward movement highest point of curve downward movement upward trend |
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aggregate output
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the total quantity of goods and services produced in an economy in a given period
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recession
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a period during white aggregate output declines.
period where aggregate output declines for two or more consecutive quarters |
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depression
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prolonged, deep recession
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unemployment rate
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percentage of labor force that is unemployed
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3 kinds of policy that government uses to influence the economy
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fiscal policy
monetary policy growth or supply side policies |
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fiscal policy
expanisionary contractioanry |
government policies concerning taxes and expenditures
increase spending (lower taxes) to get out of a slump decrease spending (raise taxes)to avioid inflation |
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monetary policy
expansionary contractionary |
tools used by fed to control quanity of money in economy
lower interest rates to spur growth raise interest rates to slow inflation |
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supply side policies
ex |
government policies that focus on stimulating aggregate supply instead of aggregate demand
loosening business laws free trade agreements |
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transfer payments
ex |
cash payments made by govt to people who do not supply goods, labor, or services in exhange for these payments
social security welfare |
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3 market arenas
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goods and services market
labor market money (financial) market |
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goods and services market
households firms |
households- demanders
firms- suppliers |
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labor market
households firms |
households- suppliers
firms- demanders |
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money market
households firms |
both are suppliers and demanders
households supply funds by purchasing stocks and bonds, demand funds when buying a car, house. |
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treasury bonds, notes, and bills
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promissory notes issued by fed government when it borrows money
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promissory note
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promise to repay
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corporate bonds
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promissory notes issued by corporations when they borrow money
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shares of stock
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financial instruments that give to the holder a share in a firms ownership and therefore rhe right to share in the firms profit
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dividends
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portion of a corporations profits that the firm pays out each period to its shareholders
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aggregate supply
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total supply of goods and services in an economy
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aggregate demand
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total demand for goods and services in an economy
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expansion or boom
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period of business cycle from a trough up to a peak during which output and employment rise
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contraction, recession, or slump
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period in the business cycle from a peak down to a trough where output and employment fall
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national income and products account
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data collected and published by the govt describing various components of national income and output in the economy
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gross domestic product
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total market value of all final goods and services produced within a given period by factors of production within a country
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final goods and services
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goods and services produced for final use
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intermediate goods
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goods that are produced by one firm for use in further processing by another firm
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value added
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difference between the value of goods as they leave a stage of production and the cost of the goods as they enterd that stage
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what GDP ignores
used goods or services paper transactions output produced abroad by domestic firms |
used cars
stocks |
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gross national product
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total market value of all final goods and services produced within a given period by factor of production owned by a countrys citizens
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expenditure approach
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adds up total amount spent on all final goods during a given period
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income approach
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adds use all measures in come recivewd by all factors of production in a given period
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why are expenditure and income approach the same?
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every expenditure is someones reciept
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three types of expenditures
C I G nex export |
personal consumption
spending by private sector firms and households on new capital goods consumption and ivestment by the public sector net spending by the rest of the world (EX-IM) |
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GDP expenditure approach equation
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GDP= C + I + G + (EX-IM)
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durable goods
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goods that last a relativley long time such as cars and household appliances
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nondurable goods
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goods that are used up fairly quickly, such as food and clothing
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services
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things that we buy that do not involve the production of physical things, such as legal and medical services and education
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non residential investment
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expenditures by firms for machines, tools, plants, and so on
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residential invesmtent
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expenditures by households and firms on new houses and aparment buildings
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change in busines inventories
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amount by which firms inventories change during a period. inventories are the goods that firms produce now but intend to sell later
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depreciation
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amount by which an assets value falls in a given period
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gross investment
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total value of newly produced capital goods produced in a given period
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net investment
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gross investment - depreciation
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national income
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total income earned by factors of production owned by a countrys citizens
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compenstation of employees
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includes wages, salaries, and various supplements- employers contributions to social insurance and pension funds for example, paid to households by firms and the government
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proprietors income
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income of unincorporated businesses
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rental income
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income recieved by proeperty owners in the form of rent
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conrporate profits
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income of corporate businesses
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net interest
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interest paid by businesses
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indirect taxes minus subsidies
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taxes such as sales taxes, custom duties, and liscence fees, less subsidies that the government pays for which it recieves no goods or services in return
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net business tranfer payments
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net transfer payments by businesses to others
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surplus of government enterprise
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income of government enterprises
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net national product
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GNP minus depreciation. (what is required to maintain capital stock)
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statistical discrepency
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data measurement error
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real
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inflation adjusted
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personal income
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total income of households before paying personal income taxes
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disposable personal income or after tax income
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personal income minus personal income taxes. the amount that households have to spend or save
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personal savings rate
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percentage of disposable personal income that is saved. is reate is low, households spend a lot, vice versa
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current dollars
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current prices that one pays for goods and services
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nominal GDP
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GDP meausred in current dollars
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weight
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importance attached to an item within a group of items
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real GDP
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inflation adjusted GDP
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base year
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year chosen for the weights in a fixed weight procedure
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fixed weight procedure
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a procedure that uses weights from a given base year
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underground economy
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part of economy in which transactions take place and in which income is generated that is unreported and therefor not counted in GDP
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gross national income
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GNP converted into dollars using average of currecy exchange rates over seveeral years adjusted for rates of inflation
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calculating change in real GDP
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use 2001, 2002 as a base year and use those prices to calculate 2001 and 2002 GDPs for the repsective years
divide percent increase (XXX.XX) and square root the numbers |
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GDP deflator
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measure of overall price level as used by the BEA
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calculating GDP deflator
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study PP, sheet
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output growth
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the grotwh rate of the output of the entire economy
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per capita output growth
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the growth rate of output perperson in the economy
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productivity growth
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the growth rate of output per worker
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3 goals of an economy
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rapid output growth per worker
low unemployment low inflation |
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producitivty / labor productivity
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output per worker hour
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how to increase more/better human capital
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more workers
longer workweek education |
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how to increase more/better physical capital
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more machines
faster machines |
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employed
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any person 16 or older who
works for pay either for someone else or in their own business for 1 or more hour per week 2. works without pay for 15 or more hours per week in a family enterprise 3. who has a job but is temporarily absent, or without pay |
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unemployed
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person 16 or older who
is not working is available for work has made specific efforts to find work during the previous four weeks |
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not in the labor force
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a person who is not looking for work because they do not want a job or has given up looking
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labor force
equation |
number of people employed plus number of people unemployed
employed+unemployed |
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population (16+years old) equation
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labor force + NILF
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unemployment rate equation
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unemployed/employed + unemployed
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labor force participation rate
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labor force/population
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discouraged worker affect
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decline in measured unemployment rate that results when people who wants to work but cann find jobs grow discouraged and stop looking, thus dropping out of th ranks of the unemployed and the labor force.
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humphrey hawkings act
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established a specific unemployment target of 4%
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3 types of unemployment
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frictional
structural cyclical |
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natural rate of unemployment
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unemployment that occurs as a normal part of the functioning of the economy. sometimes taken as the sum of frictional unemployment and structual unemployment
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frictional unemployment
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portion of unemployment that is due to the normal working of the labor market; used to denonte short run job/skill matching problems
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structural unemployment
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portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries
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cyclical unemployment
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increase of unemployment that occurs during recessions and depressions
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seasonal unemployment
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unemployment due to seasonal changes (summer, holidays)
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inflation
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increase in overall price level
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deflation
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decrease in overall price levels
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sustained inflation
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an increase in the overal price level that continues over a significant period
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consumer price index (CPI)
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price index computed each month by the BLS using a bundle that is meant to represent the market basket purchased monthy by typical urban consumers
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difference between CPI and GDP
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CPI calculates only consumer goods and services...GDP covers ALL goods and services
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producer price index (PPI)
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measures of prices that producers recieve for products at all stages in the production process
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three categories of production materials
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finished goods, intermediate materials, crude materials
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real interest rate
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difference between interest rate on a loan and the inflation rate
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who benefits when inflation is
higher lower than expected |
debtors
creditors |
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3 markets of macroeconomics
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goods and services market
financial market labor market |
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aggregate output
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total quanitity of goods and services produced in an economy during a given period
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aggregate income
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the total income recieved by all factors of production in a given period.
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(Y)
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aggregate output (income)
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aggregate output=___
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real GDP
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saving
variable= saving vs savings |
part of its income that a household does not consume in a given period.
(s) current stock of accumulated saving. |
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identity
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something that is always true
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saving equations
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saving == income - consumption
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determinants of aggregate consumption (4)
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household income
household wealth interest rates household expectations about the future |
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general theory (keynes)
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amount of consumption undetaken by a household is directly related to its income
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consumption function
aggregate consumption function equation |
relationship between income and consumption
c=a + by |
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marginal propensity to consume (MPC)
MPC=? |
that fraction of a change in income that is consumed, or spent
slope of consumption function= delta C/delta Y |
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marginal propensity to save (MPS)
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that fraction of a change in income that is saved
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MPC + MPS=?
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1
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extension equation of generic consumption fucntion
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C=100 + .75Y
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investment
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purchases by firms of new buildings and equiptment and additions to inventories, all of which adds to firms capital stock
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change in inventory
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production minus sales
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desired or planned investment
symbol |
additions to capital stock and inventory that are planned by firms
(I) |
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unplanned investment
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changed in inventory attributed to unforseen fluctuations in purchasing habits (ex firm makes 1000 cars but only sells 600)
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actual invenstment
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actual amount of investment that takes place, it includes items such as unplanned changes in inventories
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planned aggregate expenditure (AE)
AE equation |
total amount the economy plans to spend in a given period. equal to consumption plus planned investment.
AE== C + I |
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equilibrium
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occurs when there is no tendency for change. in macro goods market, equilibrium occurs wehn planned AE is equal to aggergate output
AE=Y C+I=Y |
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Y=C+S
Y=C+I C+S=C+I S=I equilibrium occurs when... |
saving equals planned investment
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multiplier
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ratio of the change in the equilibrium level of output to a change in some autonomous variable
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autonomous variable
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variable that is assumed not to depend on the state of the economy. that is, it does not change when the economy changes.
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multiplier equation
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1/MPS
1/1-MPC |
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fiscal policy
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the governments spending and taxing policy
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monetary policy
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the behavior of the federal reserve concerning the nations money supply
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discretionary fiscal policy
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changes in taxes or spending that are the result of deliberate changes in government policy
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net taxes
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taxes paid by firms and households to the government minus transfer payments made to households by the government
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disposable income
disposable income equation |
total income minus net taxes
disposable income (yd)== Y-T |
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new consumption function
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y=a+b*Yd
(Yd=Y-T) |
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lump sum taxes
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taxes that do not depend on income
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budjet defecit
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difference between what a government spends on what it collect in taxes in a given period. G-T
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leakes and injections
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leakges (savings) leave output unpurchsed, must be counterbalanced by injections, or spending by other entities (investment)
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government spending multiplier
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ratio of change in the equilibrium level of output to a change in government spending
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government spending multiplier equation
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1/MPS
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tax multiplier
tax multiplier equation (REMEMBER) |
ratio of change in the equilibrium level of output to a change in taxes
-(MPC/MPS) if net taxes decrease, THAT TOO IS A NEG NUMBER |
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balanced budject multiplier
#=? |
suppose government decides to increase spending, and finances this by increasing taxes the same amount
1 ^G=^T=40 ^Y=40=^G |
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federal budget
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the budget of the federal government
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federal surplus
federal defecit |
federal government reciepts minus expenditures
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federal debt
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total amount owed by the federal government
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automatic stabalizers
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revenue and expenditure items in federal budjet that automatically change with the sate of the economy in such a way as to stabalize GDP
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fiscal drag
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negative effect on the economy that occurs when average tax rates increase because taxpayers have moved into higher income brackets during an expansion
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full employment budjet
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what the federal budjet would be if the economy were producing at a full employment level of output
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structural defecit
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the defecit that remains at full employment
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cyclical defecit
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the defecit that occurs because of a downturn in a business cycle.
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GDP Terms
nominal real deflator |
using current prices
inflation adjusted (using current prices for concerning year) taking averages of two years that each use a differnt base year |
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why are aggregate output and aggregate income equal
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every expenditure is someone elses reciept
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past recessions over 30 years
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74-75
80-83 90-91 01 |
